Wash. reaches deal for loan modifications through Wells Fargo

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Washington and seven other states on Wednesday reached a settlement with Wells Fargo over sub-prime mortgage loans that essentially set homeowners up for failure, according to investigators.

Wells Fargo did not initiate the loans, but is left to clean up a modification mess created by two other lenders, before Wells Fargo took over.

According to the settlement, Wachovia Bank and World Savings Bank offered so-called ""pick-a-pay" loans with which homeowners selected from four options: a minimum payment plan that doesn't cover interest, an interest-only payment, a 15-year amortizing payment or a 30-year amortizing payment.

But investigators say the substantial risks of those options were never fully disclosed. Most consumers chose option number one, the minimum payment- and eventually ended up with higher monthly payments and larger loan balances.

State Attorney General Rob McKenna praised Wells Fargo for taking action even before the state stepped in. McKenna says the bank assisted 500 victims of the unfair contracts Wells Fargo assumed. Under the settlement the bank will provide loan modifications to an estimated 400 additional homeowners - providing more than $29 million in mortgage relief.

Wells Fargo customers who originally took out mortgages through Wachovia or World Savings/Golden West Corp can call 888-565-1422 to see if they're eligible for loan modification under this settlement.

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